Pollution Exclusions
The Basic & Total Pollution Exclusions
The Pollution exclusion often found in policies that are the subject of dispute provides:
It is agreed that this policy does not apply to liability for personal injury or property damage arising out of the discharge, dispersal, release, escape, or seepage of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste material or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water, unless such discharge, dispersal, release or escape is sudden and accidental. [Emerson Electric Co. v. Aetna Casualty & Surety Company, 319 Ill. App. 3d 218, 743 N.E. 2d 629, 252 Ill. Dec. 761 (Ill. App. 01/16/2001)].
Rarely has an issue spawned as many court decisions, and as many varied decisions, rationales and results as has the pollution-exclusion clause.[1] Of the states that have considered the exclusion, approximately half of them have determined that the clause is only meant to exclude coverage for traditional environmental pollution[2] while the remaining states seem to have concluded that the language of the clause excludes from coverage all forms of pollution.
Although a policy contained a clear and unambiguous pollution exclusion, the District Court for the Western District of Louisiana noted that the coverage offered under the Premises Operations Liability Endorsement and CGL policy, seem tailor-made for the insured’s risks and alleged losses. Given the insured’s line of business - the transport of oil - it could yield absurd results to interpret the endorsement in a way that gave it any independent effect while simultaneously barring any coverage for oil spills under the Pollution Exclusion. In other words, such a reading would require the court to find that Central Crude purchased an umbrella policy that provided no coverage for one of the major risks of its line of business. Louisiana law still permits further interpretation in light of the potential absurdity. Great American’s argument that the Pollution Exclusion must trump all other provisions of the policy cannot withstand these findings. Accordingly, it has not carried its burden on a motion for summary judgment. [Cent. Crude, Inc. v. Liberty Mut. Ins. Co. (W.D. La., 2019)] However, after trial the court may find no coverage at all.
In a case where the insurer’s position that the pollution exclusion applied to a loss was rooted in the literal language of the absolute pollution exclusion, the court found the actions of the insurer reasonable.[3] Reversing an $11 million judgment, the court applied the literal language of the exclusion the insurer would succeed and the exclusion would eliminate the duty to indemnify. Moreover, plain language remains an important principle of contract interpretation. Just two months before the MacKinnon decision, the California Supreme Court had enforced the plain language of a collapse provision in a homeowner’s insurance policy and, of course, the high court had invoked plain language as the governing rule numerous times before.[4]
The pollution exclusion exception reinstates coverage for toxic releases which are sudden and accidental. The Illinois court found that the term “sudden” in the pollution exclusion exception of CGL policies is ambiguous and construed it in favor of the insured to mean unexpected or unintended. [Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204, 154 Ill.2d 90, 180 Ill.Dec. 691 (Ill. 1992)]
The Louisiana Supreme Court clarified Louisiana law on the proper interpretation of total pollution exclusions.[5] It held that such clauses “w[ere] designed to exclude coverage for environmental pollution only” and cannot be “applied to all contact with substances that may be classified as pollutants.”[6] The Doerr court analyzed the history of total pollution exclusions, observing that such clauses originated in response to federal and state legislation, such as CERCLA, that assigned responsibility for the costs of cleaning up environmental pollution. The exclusions were designed to prevent insureds from shifting the risk of such cleanup costs to their general liability policies.
The Doerr court concluded that “[a] literal reading of the total pollution exclusions would alter the general scope and expectation of the parties.” An insured under a CGL Policy “expect[s] to be insulated generally from liability claims” and would not expect that policy to bar coverage for events that “one would not ordinarily characterize … as pollution.” The court gave examples of events that would not ordinarily be characterized as pollution, including the release of carbon monoxide from a small business owner’s delivery truck, a slip and fall on the spilled contents of a bottle of Drano, or bodily injury caused by an allergic reaction to the chlorine in a public pool.[7] Some limiting principle was necessary because a broad reading of total pollution exclusion clauses would lead to absurd results.
To determine whether a total pollution exclusion applies in Louisiana, consider the following:
Whether the insured is a “polluter” within the meaning of the exclusion;
Whether the injury-causing substance is a “pollutant” within the meaning of the exclusion; and
Whether there was a “discharge, dispersal, seepage, migration, release or escape” of a pollutant by the insured within the meaning of the policy.[8]
Finding coverage existed, the court found that whether the third-party defendants are polluters requires a review of the business of the insured. The oil and gas industry requires the use of numerous chemicals that are considered pollutants, and these chemicals are the very nature of that business. The third-party plaintiffs concede that W.O. Break is a pollutant, at least in some contexts. However, because there was no discharge, dispersal, seepage, migration, release or escape similar to that present in the cases finding that a policy’s pollution exclusion applies. The decision of the court was that:
Without belaboring the obvious, we hold that this exclusion is intended to shield the insurer from the liabilities of the insured to outsiders, either neighboring landowners or governmental entities enforcing environmental laws, rather than injuries caused by toxic substances that are still confined within the area of their intended use.
Whether the pollution exclusion language precludes coverage for the injuries suffered by a plaintiff is based on the terminology used in the exclusion. As a matter of law, one court found that the absolute pollution exclusion does not exclude coverage for injury resulting from exposure to fuel fumes in a confined area in a workplace. The Supreme Court of Ohio considered the pollution exclusion in the context of carbon monoxide from a faulty residential heater in Andersen, 93 Ohio St.3d 547, 2001-Ohio-1607, 757 N.E.2d 329. The genesis of the exclusion was to exclude intentional polluters from protection from the results of their improper or illegal conduct. The Andersen court then noted that, based on the purpose and history of that exclusion, the insured could reasonably believe that residential situations would not be excluded unless the insurer specified the exclusion.
The Andersen syllabus states: “Carbon monoxide emitted from a residential heater is not a ‘pollutant’ under the pollution exclusion of a commercial general liability insurance policy unless specifically enumerated as such.” In Ohio, the court therefore concluded that aircraft fuel fumes that are confined to the tanker during repairs, as alleged in this action, are not pollutants under the exclusion clause.[9]
Of course, when the facts and the exclusion apply, a court will enforce the exclusion.[10] The emission of carbon monoxide from a furnace into an apartment unambiguously satisfies the pollution exclusion’s requirement of a “discharge, dispersal, seepage, migration, release, or escape.” It is irrelevant that a reasonable insured might not expect this result, or that, given sufficient imagination, we can think of ways—not presented here—in which enforcement of this exclusion would lead to absurd results.[11]
Pollution exclusions have been rewritten over the last few decades until courts now agree that the absolute pollution exclusion is not ambiguous. In Hiland Partners GP Holdings, LLC. v. National Union Fire…, United States Court of Appeals, Eighth Circuit 847 F.3d 594, 599 (8th Cir, January 31, 2017) the Eighth Circuit was faced with a claim asking it to reverse a trial court decision that the exclusion was ambiguous and did not apply to an injury suit.
In North Dakota the insurer has the burden to prove the applicability of a policy exclusion. The insured, however, carries the burden to prove the applicability of an exception to the exclusion in order to benefit from coverage. National Union met its summary judgment burden by proving the applicability of the pollution exclusion. The district court then properly placed the burden of proving the applicability of an exception to this exclusion on Hiland.